Union Budget 2021: The major takeaways from the First Digital Budget Speech for startups

The Union Budget 2021 has been well received, with much to cheer and much less to fear, based on initial reactions. Minister of Finance Nirmala Sitharaman has attempted to address the key problems facing the economy at present without disrupting the tax brackets that have been welcomed by the markets. The Finance Minister specifically expressed the ‘Atmanirbharta’ or self-reliance’ vision of the government. In addition, the focus was also on key sectors in the digital economy, with higher spending on healthcare, housing and employment in manufacturing and infrastructure.

For the fiscal year 2021–22, the Economic Survey had earlier expected a GDP growth rate of 11 percent. It remains to be seen if the government’s spending increase gives key sectors the thrust to achieve this benchmark. In the meantime, here are the main highlights for start-ups from the 2021–21 Union Budget.

Tax Holidays For Startups; Exemptions For Investors

In addition to the new concept for small businesses, during its Union Budget 2021 address, Sitharaman also suggested an extension of the tax holiday for start-ups by another year to March 31, 2022. In addition, she also announced that in order to promote investment in start-ups, the Government is proposing to extend the duration of eligibility to demand an exemption from capital gains for investments made in start-ups by one more year until 31 March 2022.

Insurtech Gets FDI Booster Shot

The plan to amend the Insurance Act of 1938 to lift the Permitted Foreign Direct Investment Cap (FDI) from 49 percent to 74 percent for insurance companies in the Union Budget 2021 was among the primary budget decisions. This would allow foreign ownership and control of, with certain protections, insurance companies in the country. However, resident Indians would have to be the majority of directors on the boards of such companies and main managers, with 50 percent of directors being independent directors and a specified percentage of income being retained as general revenue.

Up to 49% of foreign direct investment in insurance undertakings is currently allowed on an automatic path, with a rider specifying that insurance undertakings should be Indian-owned and controlled, i.e. more than 50% is beneficially owned by resident Indian citizens and the insurance undertaking is in the hands of resident Indian citizens.

Fintech In Focus

To boost the penetration of digital payments as well as other steps to boost financial inclusion, the Indian government proposed allocating INR 1,500 Cr.
While presenting the Union budget for 2021–22, Finance Minister Nirmala Sitharaman suggested setting up a “world-class” fintech centre at GIFT City near Gujarat, Gandhinagar (Gujarat International Finance Tec-City). 

The government has proposed to reduce the margin money requirement from 25 percent to 15 percent in order to further promote credit flow under the Stand Up India scheme for scheduled castes and tribes, as well as women entrepreneurs, and to also provide loans for farming production.

Lowering Compliance Burden On Startups

The FM also proposed that the concept under the Companies Act 2013 be revised for small companies by raising their capitalisation threshold from INR 50 Lakh to INR 2 Cr and turnover from INR 2 Cr to INR 20 Cr. By the new definition of small companies under the Companies Act, a large number of startups will be recognised as small companies. Small companies enjoy certain benefits over other companies in terms of compliance requirements. For instance, a small company needs to hold only two board meetings in a year, unlike other companies which are required to hold four such meetings in the same period. 

In a separate announcement, which is also expected to ease the compliance burden on startups, Sitharaman proposed to use data analytics, artificial intelligence, machine learning to make regulatory filings more frictionless for businesses and startups in a revamp of the ministry of corporate affairs (MCA) portal. 

Focus On Healthtech; National Health Portal 

Over the previous year, the budget allocation rose by 137 percent. With an outlay of INR 64,180 Cr over 6 years, the FM also published Aatmanirbhar Health Yojana. She declared the operationalization of health units at 32 airports, 11 seaports and 7 land crossings. INR 35,000 Cr for vaccination against Covid-19 was also allocated to the budget. Talking about India’s battle against Covid-19, Sitharaman said the country has two vaccines available, adding that two more vaccines are expected soon.

Rapid Digitalisation Underway In Agriculture

Sitharaman revealed that farmers have recorded around 1.68 Cr on the e-agriculture marketplace of the government, eNAM, recording a transaction worth INR 1.14 Lakh Cr. Established in April 2016, eNAM is an online e-commerce portal that connects to physical wholesale markets through a virtual network, creating a single national market for agricultural products, enabling farmers to sell their produce online at a clear and competitive price. The finance minister announced steps to alleviate concerns with the government at the receiving end of the wrath of farmers for the three contentious agricultural reform laws that many believe would affect minimum support prices (MSPs) in the long run.

Expansion Roadmap or National Education Policy

Taking forward the National Education Policy (NEP) announced in 2020, Nirmala Sitharaman, Minister of Finance, said during the 2021 Union Budget that the government will expand this initiative across unique schools for regional policy implementation. The FM also announced steps across the country to boost skill development initiatives. In order to include all NEP elements, more than 15,000 schools will be qualitatively strengthened. They will hold hands and mentor other colleges in their region. She announced that, in partnership with NGOs, private schools, and states, 100 new Sainik Schools will be set up. Taking forward the plans announced in last year’s budget for the establishment of a Higher Education Commission, Sitharaman announced that legislation for the same will be introduced in 2021. It will be a standard-setting, accreditation, oversight and funding umbrella organisation.

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